University of Hard Knocks

With two positive jobs reports in a row, it seems clear that the economy is slowly and steadily recovering, which should come as welcome news to students shielded from the effects of the recession behind university walls. But for those who had the misfortune to graduate and enter the workforce at the height of the downturn, the effects of the Great Recession will likely stay with them for the rest of their working lives.

At first glance, it seems clear that those with a college degree have a leg up in a recession. Young people with only a high-school diploma have an unemployment rate of 22 percent, compared with 9 percent with a college degree. But the average college graduate will have the most permanent impact on their earnings because they’ll have missed the first steps in building their career.

Picture three people: one person who doesn’t go to college, someone who graduates with average grades from a non-elite college, and a third who graduates from the top of her class at an elite university. Having the bad luck to graduate into a recession has a long-term impact on the earnings of all young people who graduate into a recession. Looking at the downturn of the early 1980s, labor economist Lisa Kahn found that for every 1 percent increase in unemployment, young people experienced an initial 6 percent to 7 percent decrease in their wages. Even 15 years out of college, wages for these grads were 2.5 percent lower.

But a recent study by economists Philip Oreopoulos, Till von Wachter, and Andrew Heisz went further, looking at how each of the three young people would be impacted. All three will suffer a wage penalty, and the person without the college degree will suffer the worst one upfront. However, for non-college-grads, wages bounce back the quickest once the economy recovers, with less of a long-term negative impact. One reason for the quick rebound is that the earnings of these workers are tied to how many hours they can work in the market.

But someone who graduates from a non-elite college will have a much harder time bouncing back, because they’ll have missed the first steps in building their career. The average college grad would normally work an entry-level job in their occupation to get their foot in the door and use that job as an opportunity to get a better job, with more responsibility and better pay. They continue to do this over the course of their working life, moving up, at whatever speed, their occupation’s ladder; they have an orientation toward building a “career.”

But college-educated workers’ careers aren’t starting in this recession. They aren’t getting that first entry-level job that starts them on a career path. Instead, they are “cyclically downgrading,” which is economic jargon for taking worse jobs—jobs that require less education than they have—with worse employers and on worse conditions than they would have otherwise. Both of these mean that they are missing the crucial first step in building a career. As such, the impact on graduating into a recession is most permanent for this group of young people. Meanwhile, those who graduate from elite colleges are able to rebound much quicker through advancements, if they even stumbled in the first place.

The biggest change for this group of workers can be seen in the massive growth of the unpaid internship. Data on unpaid internships are difficult to find, but surveys tell us that taking an unpaid internship doesn’t lead to better job placement than going straight into one’s first job. According to Ross Eisenbrey of the Economic Policy Institute, unpaid internships don’t lead to higher starting salaries, either. Instead of giving recent college grads a leg up, unpaid internships may put them at a disadvantage: Rather than hiring grads who have been trying to stay afloat during the recession, employers hire newer, more recent graduates.

Though the diagnosis is clear, solutions are not. We have to acknowledge that a large number of millennials have been dealt a terrible hand, and the sense of betrayal will be both pervasive and legitimate. How this will play out politically isn’t clear yet—it could give young people a sense of solidarity with those worse off and an understanding of the need for collective economic action, or it could lead to a further entrenchment of “you’re on your own” economics.

There are policy responses to this problem. Labor law can be used to push unpaid internships into productive enterprises rather than exploitative non-paying jobs. The terms of student loans can be adjusted to make them less of a burden on young people struggling to get their careers started. And getting unemployment down through expansionary fiscal and monetary policy will help limit the damages.

But the policy responses will need to go beyond the short-term. It’s become common to emphasize more education as a solution for our weak job market from both parties. But the research shows that weak job markets can do significant damage to long-term returns on education. Without a proper emphasis on maintaining full employment, a lot of educational investment will simply go to waste. Ben Bernanke might seem like the oddest guy to be causing grief to the characters of the TV show Girls and other millennials, but his failure to bring unemployment down forms the backdrop of their unpaid internships, cruel bosses, returns to their childhood bedrooms, and general collapse of the idea that a “career” could exist for them.

About the Author

Mike Konczal is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. His blog, Rortybomb, was named one of the 25 Best Financial Blogs by Time magazine. His writing has appeared in the Boston Review, the Washington Monthly, The Nation, Slate, and Dissent. He's appeared on PBS NewsHour, MSNBC's Rachel Maddow Show, CNN, Marketplace, and more.